European stocks saw a modest uptick on Friday, with a boost from the financial sector, though the overall weekly trend remained negative due to scaled-down expectations of interest rate cuts.
As of 1319 GMT, the pan-European STOXX 600 index was up 0.2%, building on gains from the previous session.
Banks were among the leaders of the rally, surging by 0.5%, primarily driven by a remarkable 3.2% surge in KBC Group after Morgan Stanley upgraded the Belgian integrated bank-insurance group to “overweight” from “equal-weight.”
Similarly, Avanza, a Swedish financial services provider, experienced a notable 2.6% rise, making it one of the top performers on the index.
This surge came on the heels of Avanza’s impressive fourth-quarter results, which exceeded market expectations.
Nonetheless, the overall weekly trajectory pointed towards a loss of approximately 1% for the benchmark index.
This decline was prompted by hawkish comments from European Central Bank officials, causing traders to reconsider their anticipations of interest rate cuts.
James Baxter, founder of Tideway Wealth, remarked, “The outlook for inflation is maybe a bit more sticky than perhaps we all hoped at the end of 2023, which doesn’t come as a huge surprise.”
He explained that the recent rally in bonds and drop in yields was now reversing, tempering the market’s enthusiasm.
In contrast, J.P. Morgan adjusted its expectations, moving up the timeline for the ECB’s first rate cut from September to June.
However, the bank remained cautious about trends in inflation and wage growth.
On the economic data front, German producer prices fell more than anticipated in December, dropping 8.6% year-on-year. Nevertheless, the blue-chip DAX 40 index saw a 0.3% increase.
In a separate development, British retail sales experienced the most significant decline in nearly three years in December, raising concerns of an impending recession.
However, the FTSE 100 index managed to advance by 0.4%.
Telecom giants Ericsson and Nokia faced setbacks, declining by 3.2% and 2.6%, respectively.
This decline followed a downgrade by Barclays, citing a slowdown in the rollout of 5G technology in India.
Meanwhile, technology stocks advanced for the second consecutive session, rising by 0.9%.
Berenberg expressed optimism about Europe’s technology, media, and telecom sector, projecting upside potential in 2024 driven by a macroeconomic rebound, generative artificial intelligence, and structural growth.
Among other notable movers, Teleperformance gained 7.7% after Stifel upgraded the teleservices firm to a “buy” rating from “hold.”
Temenos, a Swiss banking software company, witnessed a 3.2% increase as its fourth-quarter and annual results exceeded estimates, propelling the stock to its highest level in over a year.